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Preparing for RIFs as Business Slows

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November/December, 2003 - Volume 82 Number 6

by Hunter Lott

As interest rates creep up, the volume of work your operation handles may decrease, forcing a serious look at reducing business costs. One of the options available is a reduction in force. Let's be clear from the beginning, a RIF should be the last resort; there are alternatives you can look at before implementing a RIF , which will be explored later in this article.

A reduction in force is different from a layoff or a firing. The term “layoff” itself presents a problem. Layoff means callback. The dictionary describes “layoff” as temporary. When it snows, the resorts hire ski instructors. When the snow melts, the instructors are laid off, and the resort hopes the instructors come back the next season. If you lay off an employee and send them out the front door and hire their replacement through the back door 30 days later, a year later, or even longer, you've left yourself open to claims of discrimination and wrongful discharge. The term layoff should not be used if you need to fire someone for poor performance. If for legitimate business reasons, such as a decline in business, head count has to be lowered, then the terms of choice are “job elimination” or “reduction in force.”

How did we get to this point?

The workplace used to be like a pyramid. Lots of employees were at the bottom. They worked themselves up the corporate ladder until they are in charge. Some found a job they were competent at and really liked. They stayed in that job for 30 years, retired, and the company took care of them for the rest of their lives. The pyramid was steady, secure, and slow to change.

Now the workplace is like a hurricane. Constantly moving. Constantly changing. The hurricane economy forces owners, managers, and employees to work together to solve problems. And the hurricane is driven by the customer. Today few industries, much less individual companies, can afford to ignore the customer. This isn't bad, just different. Make sure, as you consider a reduction in force, that you understand what your company will look like after the workforce reduction.

What is Reasonable?

A one-person job elimination is hard to sell as a reasonable reduction in force. Let's say you decide to eliminate Martha's job. She's worked for you for over 20 years and is 62 years old. The last evaluation in the file says she “exceeds expectations.” Would you want to go on 60 Minutes and face Mike Wallace (the oldest living man on TV) and defend your action? Explain to Mike that this one job out of 50 total employees is going to financially save your operation this year? You can't say Martha was the most recent hire, therefore the candidate for the RIF . She's been with you for over 20 years! And what about the “exceeds expectations” evaluation? How do you explain that? “My expectations were pretty low that year.”

What's reasonable? Anytime you see or hear the word reasonable at work or in court think 60 Minutes. Would you want to go on 60 Minutes and defend your actions? 60 Minutes isn't always right, but they are everywhere. If you wouldn't do it or say it on 60 Minutes, then don't do it, say it, or allow it to be done or said in your operation.

Creative Alternatives

As mentioned previously, a RIF should be your last resort. Here are some other options to consider first:

  • job sharing
  • hiringfreeze/salary freeze
  • across the board cut in wages/benefits
  • voluntary separation (maybe with an enhanced financial package)
  • attrition

The Law by the Numbers

When implementing a reduction in force, you must be able to prove you didn't use age, sex, race, or any other legally protected characteristic to make the decision. The burden of proof is heavily on the employer. The documentation must demonstrate a legitimate business reason for the RIF and that age or sex or race wasn't the determining factor in choosing the employees. It can be very costly if you wind up in court. Consider the following:

Of the 84,442 charges filed with the Equal Employment Opportunity Commission (EEOC) in 2002, alleged race discrimination was the number one charge with 29,910 complaints filed. Charges with the biggest percentage increases from 2001 were:

  • Religious discrimination +21%
  • Age discrimination +14.5%
  • National origin +13%
  • Race discrimination +3.5%
  • Gender bias +1.6%
  • Disability discrimination - 3%

A five-year study by the EEOC found a 91 percent success rate when they and the employee involved went to court. (numbers courtesy of eeoc.gov) In other words, the employer lost.

And, equally eye opening, Jury Verdict Research (an outfit that studies jury results for the legal profession) showed the following median compensatory awards for the years 1996-2002:

You can see by these figures, it's not smart to mess with older workers. One of the biggest legal vulnerabilities faced in job elimination is age discrimination. The Age Discrimination in Employment Act defines old as 40. Good news— employees can't get older! It makes no difference if the employees are 40, 50, 60 or over 70. Once they are over 40, the Act defines them as old. However, don't wait for bad employees to retire. The law is telling us to find problem people and deal with them quickly. If you don't, you may have them forever.

Other legal issues that can affect workplace reductions:

  • the WARN act, which is mainly for larger companies and mass layoffs
  • COBRA notification is required for continuing health care benefits
  • Release agreements and waivers should be considered if significant severance payments are involved. These waivers can help release the company from certain liabilities and better manage the legal risk. If an older worker is involved, there are certain guidelines that must be followed for these releases to meet the Older Worker Benefit Protection Act.
  • If you have an employee on leave under the Family Medical Leave Act, Workers Comp, or some other company leave, the documentation would have to show that this employee would have lost his job whether on leave or not.

Because of these federal laws and additional state statues that may come into play, don't eliminate even one position at work without consulting competent, local legal counsel.

The Plan: Start With Your Handbook

Review your employee handbook and make sure you're consistent with any commitments you made concerning terminations in general. What provisions do you have for severance requirements? If you ask for two weeks notice, then give at least two weeks in severance. Help employees cope with the trauma of a RIF by offering additional severance and/or a limited amount of money in outplacement assistance.

Does your handbook include language such as “permanent”, “temp-to-perm”, “fire for cause only,” or “loyalty?” Whether in writing or part of the verbal communication that goes on at work, any one of these phrases could add unwanted liability. This doesn't make the RIF impossible but it puts additional pressure on you and the company to make sure that the RIF is legitimate and properly documented.

Vacation pay must be handled consistently with company policy and practice. Any earned vacation should be paid out. Any unearned vacation that was taken should be forgotten. Do not take it out of the employee's last paycheck. You gave them the leave time, and now you eliminate their job? It doesn't send the right message to the surviving employees who will be critical in the transition to the new workplace and the ultimate effect on your bottom line.

Have Objective, Documented Criteria

Once you're satisfied that your decision to implement a RIF passes the 60 Minutes test, then the next critical decision is which positions/employees must go. You can safely base your decision on any one or a combination of three criteria:

  • Seniority. This is the easiest. The last one hired is the first one gone. The problem here is that some of your new employees may be very talented, and you would not want to lose them.
  • Economy. You close a branch or location and anyone associated with that branch is out.
  • Performance. This is probably the most effective method. But it requires documentation. Your worst performing, worst behaving employees within the company should be the first ones gone. (In fact, as I mentioned earlier, you should have fired them already.) If you weren't able to do that, last year's evaluations or any documented performance or behavior issues become the objective criteria to justify the RIF .

A note about “attitude.” If you can't measure it, you can't manage it! No one has a good or bad attitude. Take attitude out of the subjective and make it objective. Instead, use the word “behavior.” What you owe to the employee is the communication of a behavior standard. Hire for it. Fire for it. Promote for it. RIF for it.

Here is a sample behavior standard for your employee handbook. This would be the behavior for your employees to strive for: Maintain a positive work atmosphere by acting and communicating in a manner so that you get along with clients, customers, co-workers and management.

Security

In today's work environment the issue of security cannot be ignored. Make sure you' re prepared to change passwords on computers and change locks on all the doors. A RIF will be a surprise to employees, and you may have some that have a history of violent or otherwise irrational behavior. Consider your workplace and employee makeup when deciding to notify local law enforcement or to have additional security in place.

How To Break the News

Stick with the plan. Breaking the news of a RIF is one of the toughest things you'll have to do as a manager and a company. It's important to stay organized and be as prepared as possible.

Emotions will be running high. The natural instinct of many mangers is to do it quick and move on. Fight that feeling. How you handle this communication sends a message not only to the people being separated but also to the survivors who are seeing their co-workers and friends lose their jobs. Handled with respect and dignity, the transition to the new workplace will be as smooth as possible under the circumstances. The message should be delivered one-on-one versus some kind of mass announcement or company meeting.

Many companies have a history of being unable to deliver this message in a professional manner. One small company announced its first ever job elimination that affected about 8 employees out of 100. It was bad enough, but as all eight employees walked out of the building with their boxes of belongings, they passed by the president's special parking spot. The CEO chose that day to drive his brand new $40,000 car to work! Needless to say the transition to a new workplace was a lot harder than it had to be. One company recently made its announcement of RIF through the press. They called it a re-organization and were sure that the affected employees would help train the surviving employees that were taking over some of their jobs. Yeah, right! In your dreams! This is not only unreasonable but disrespectful to the remaining employees. Another organization announced in a company-wide meeting, not attended by the CEO, that the organization was leaving town in two years or so and that the organization would be happy to move the employees to the new city. The organization was surprised when the good employees started to leave. The consulting firm that developed the plan predicted that 70% of the employees would leave town and follow their jobs to the new location. Instead, because the communication was so poorly handled, only 30 percent moved with the organization.

The message should be communicated all at once in a series of one-on-one interviews. In other words, if three employees are to be eliminated, then have three managers deliver the information at the same time, but one-on-one. The message sent is one of respect and dignity. If at all possible, avoid calling the affected employees into an office one after the other and making the announcement. That would be more embarrassing for staff affected and for those left behind.

Make sure the managers are trained and practiced at what they are going to say. Here is some suggested wording that you can customize for your situation.

“Today the company is initiating a reduction in force. You along with a number of your co-workers will be affected. The company considered various options to manage during these tough economic times. But reluctantly the decision to eliminate a number of jobs was the only reasonable option.

Along with the company's normal two-week severance, you'll receive an additional severance check based on your length of service and any unused, earned vacation. The law requires certain notices and options on some of your benefits including health insurance (COBRA) and the like. Also, you'll have up to $500 worth of outplacement assistance to help you locate a new job. You were selected based on your [performance] [behavior][the economy]. Today is your last day. This decision is final.”

Do not make up a reason or apologize for the company action. Think 60 Minutes. There should be no arguing or bantering back and forth. The decision to RIF is final.

The Aftermath

In the short term it won't be much fun at work. Managers should meet with their remaining employees one-on-one and go over the new performance/behavior expectations. This also gives the surviving employees a chance to vent their frustrations. You may have to be patient as the recovery period will take longer than you think. Celebrate any small successes as you strive to create a new sense of team. After a reasonable time don't accept any more complaining. If an employee can't “let it go,” then coaching may be needed for behavior.

If the remaining employees feel abandoned, they can respond with actions ranging from finding work with your competitor to sabotaging the computer system, bad mouthing the company to key clients, or the passive but very effective practice of using up all their earned sick leave. Ignoring the survivors will guarantee the RIF will fail. The goal was to cut expenses.

Hopefully, a reduction in force is the last resort for your company. However, knowing how to effectively manage the RIF will help you avoid future lawsuits and be essential as you work with the remaining employees to continue running your business.


Hunter Lott is a partner in HCap International and the author of the upcoming book series Please Sue Me. Contact Hunter at www.pleasesueme.com



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